The Federal Housing Finance Agency (FHFA) regulates Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks, which control the vast majority of home loans. The private lenders that fund individual home mortgages bundle those mortgages into securities that are sold to the government sponsored enterprises (GSE’s) and subject to FHFA rules.

In response to the housing bust, the FHFA tightened eligibility rules, which increased the risks of private lenders, and compelled them to buy back bad mortgages. Now that even Ben Bernanke can’t get a mortgage, clearly the pendulum swung too far toward tight credit, and the powers that be are loosening eligibility rules. In a major speech to the Mortgage Bankers Association, FHFA Director Melvin Watt explained to private lenders they will be less likely to suffer losses from bad loans that they sold to a GSE. He also promised a new effort to develop sensible and responsible guidelines for mortgages with high loan-to-value ratios. Mr. Watt’s complete remarks are at: http://www.fhfa.gov/Media/PublicAffairs/Pages/Prepared-Remarks-of-Melvin-L-Watt,-Director,-Federal-Housing-Finance-Agency-at-the-MBA-Annual-Convention.aspx

The federal government’s goal is to prime the housing market, and soon we will learn whether these new policies actually trickle down into more home loans or merely reduce losses for mortgage lenders.